Be Wary Of Fee-only Designation

JANE BRYANT QUINN Staying Ahead

February 1, 1997|JANE BRYANT QUINN

NEW YORK - — Looking for financial advice? "Find a fee-only planner" is what you usually hear from consumer types like me. We take the rosy view that such planners, on average, give more objective advice.

But there are thorns among the roses. That fee-only claim may be a subterfuge.

True fee-only planners charge a flat fee - $75 to $200 an hour - for answering your questions or drawing you a financial plan. If you need an investment, they'll recommend no-load or low-load insurance, mutual funds and annuities.

If they manage your money on a continuing basis, usually by investing it in mutual funds, they shouldn't charge more than 1 percent of your account. The average is 0.6 percent.

They don't take sales commissions in any form. They don't accept fees for referring clients to commissioned salespersons. They don't profit from commissions earned by others in their firm.

By contrast, true commissioned salespersons get a percentage of the money you invest. Your cost: anywhere from 3 percent to 9 percent of your first-year investment in mutual funds and annuities, 50 percent to 110 percent of your first year's life-insurance premium and additional fees in later years.

You don't see the cost because it's quietly taken out of your investment. But it could be more than you'd pay a fee-only planner for advice.

Then there are the planners in between.

Some charge fees for developing a financial plan, then commissions for buying the investments they recommend. Others charge for the plan but reduce that fee by any commissions they earn.

Growing numbers of people want fee-only planners. But a majority of the planners who lay claim to that name may be telling you a lie.

That's the experience of a team of mystery shoppers whose recent undercover investigation was backed by the Consumer Federation of America and the National Association of Personal Financial Advisors, an organization of fee-only planners.

The shoppers reached 288 planners and investment advisers in the greater Washington area by phone and asked if they offered fee-only financial advice.

More than two-thirds said they did - an astounding number, considering that the field is actually very small.

The shoppers then asked for a copy of their Form ADV Part II, a document many advisers have to file with the Securities and Exchange Commission, disclosing their background and how they're paid.

If they didn't have an ADV, the shoppers asked for an equivalent brochure. They heard from 139 firms.

As it turned out, only 19 were true fee-only planners. Another 21 offered fee-only services to institutions but didn't commit to doing the same for individuals. Another 18 sent such vague information that the investigators couldn't tell how they were paid.

The remaining 81 planners earned commissions or other sales incentives. That's bait-and-switch. They say they're fee-only but plan to sell you commissioned products in the end.